By Marcel Okeke
Since the onset of the novel coronavirus (covid-19) pandemic about one year ago,
Nigeria’s monetary and fiscal authorities have been churning out a potpourri of
policies to deal with the dreaded pestilence and its impact, just like all other
nations of the world. Unsurprisingly, some of the policy measures have been illdigested, experimental and hasty; again, just like in many other climes.
Yet, certain obvious peculiarities of Nigeria usually make its own challenges
more telling and lingering. By default or outright mismanagement of resources,
Nigeria has remained a mono-product economy, largely import-dependent and
perpetually vulnerable to the vagaries and vicissitudes of crude oil market and its
politics in the global arena. Economy diversification has remained a mere mantra
or sing song of successive governments in the country. Now we’re talking about
effective diversification; that is, sectors of the economy other than crude oil and
gas operating in ways that the export of their products substantially improve
foreign exchange inflow into the Nigerian economy. It means having a ‘portfolio’
of exports that do not just augment inflow from oil sales but readily can sustain
the economy even without oil.
At present, there is no effective diversification; and so, the health of the Nigerian
economy still precariously hangs on oil price movement. So, with the crash of the
price of crude oil owing to the virtual shutdown of the global economy ravaged
by Covid-19, by second quarter 2020, Nigeria’s foreign exchange (forex) inflow
almost dried up. Again, unsurprisingly, due to the economy shutdowns and
collapse of supply chains, Nigeria and most countries of the world went into deep
recession by the third quarter 2020.
The concomitants of this have been high and rising inflation rate (standing at over
16 per cent by February 2021, from about eleven percent a year ago); collapsed
Gross Domestic Product (GDP) growth rate that is practically at zero level;
sharply dwindling forex reserves as well as deteriorating exchange rate of the
Naira against major currencies across the globe. Indeed, the monetary authorities
had to ‘unofficially’ devalue the Naira twice in 2020; and within this first quarter
2021, the official exchange rate has been put at around #410/$1. Even at this rate
the pressure on the local currency has been enormous and persistent, such that at
the ‘parallel’ and ‘black’ markets, the exchange rate is fast inching towards
#500/$1: meaning that, with one thousand Naira, you can at best, get only two
US dollars.
Apparently alarmed at this pace of loss in value of the local currency vis-a-vis the
dollar and others, the Central Bank of Nigeria late last year came up with a policy
to encourage forex remittances to Nigeria from the Diaspora. The policy allows
the beneficiaries of remittances the choice to be paid in dollar or the Naira
equivalent (at the point of collection). For some reasons, the expected upsurge in
forex inflow via remittances, courtesy of the new policy was not happening.
Rather, the pressure on the local currency kept heightening, even, when, owing
to the obviously unexpected rise in crude oil price since the dawn of 2021and
forex inflow therefrom, some accretion to the external reserves was recorded.
And so, during a webinar jointly organised by the Risk Management Association
of Nigeria and Moody’s Analytics of London early this year on ‘Economic and
Risk Outlook in 2021’ for Nigeria and other African countries, the ‘accretion’ in
Nigeria’s external reserves was loudly queried. The webinar moderator pointedly
disputed the ‘rising reserves’ being flaunted by this writer, as a guest speaker.
The query was pointing to the fact that many Foreign Portfolio Investors (FPIs)
and Foreign Direct Investors (FDIs) are yet unable to ‘cash out’ and/or repatriate
their dividends from Nigeria due to acute shortage of forex. Statistics show that
the outstanding ‘un-repatriated dividends and earnings’ of the FPIs and FDIs
amount to staggering billions of dollars in the past one or two years. Some, in
fact, stuck, as it were, have had to ‘reinvest’ (that is, acquire more shares) their
huge ‘un-repatriated dividends’ in their local subsidiaries here in Nigeria from
where the dividends accrued. You may call it ‘investment by frustration.’ This
scarcity of forex subsists, even as the first quarter 2021 is fast running out.
Apparently alarmed, again, by this incubus, the Central Bank of Nigeria came up
with yet another policy to further encourage the inflow of forex via Diaspora
remittances. Tagged “Naira for Dollar Scheme”, the new policy (an ‘experiment’
to last from March 8 to May 8, 2021) introduced a rebate of N5 for every $1 of
fund remitted to Nigeria, through International Money Transfer Operators
(IMTOs) licensed by the Central Bank. But one week into the implementation of
the new forex policy, the naira is still experiencing serious decline against the
dollar and other currencies.
In fact, by the trading week ended March 12, the naira was exchanging at N485/$1
at the parallel market and N415/ $1 at the Investor & Exporter forex window;
thus, dashing expectations that the new forex management scheme will strengthen
the local currency. The point is that the new policy has unwittingly given the naira
the leeway to be in a tailspin. In the first place, by allowing recipients of Diaspora
remittances to be paid dollar (or any ‘hard currency’), the monetary authority is
recognising those foreign currencies as legal tenders in Nigeria. So, beneficiaries
of the remittances are at liberty to utilize their ‘hard currency’ in any way they deem fit, including round tripping, arbitrage, and other speculative dealings in the
forex market. Every beneficiary of remittances must now explore all options to
maximize ‘gains’ from the ‘windfall’ occasioned by the “Naira for Dollar”
experiment—even if only for the two month pilot run.
Now, with many ‘legal tenders’ in the Nigerian economy, the naira has lost a lot
of value, worth and relevance. Given the persisting hyperinflation (at almost 17
per cent), the local currency has literally ceased to perform some of the critical
functions of money, namely store of value and standard of deferred payment. It’s
now left with medium of exchange and unit of account (to some extent). And
since the local currency no longer helps in storing value (or wealth), capital flight
(by various methods) has since prevailed. So, to a large extent, what is reflecting
in the ‘collapse’ of the naira is the consistent large-scale ‘exodus of financial
assets and capital’ from Nigeria to other nations of the world.
Unfortunately, this ineluctable fate of the naira is intricately intertwined with the
political and economic issues of the Nigerian state. The subsisting inclement
investment climate, accentuated by socio-political upheavals is pointedly
anathema to capital inflow and formation. Capital or money ‘flies’ to climes of
stability and reasonable returns on investment. In other words, safety, security
and stability precede returns on investment. So, whither the Naira?
• Okeke, a practising Economist & Consultant, lives in Lagos, Nigeria
